Consumer How Products sustainability is and Retail fundamentally changing consumer preferences Executive Summary

Growing concerns about environmental challenges and the need for conservation of natural resources – as well as greater expectations around societal issues – have brought sustainability into the mainstream for consumers and organizations. This extensive research program analyzes the impact of sustainability on consumers’ purchasing patterns and examines how far organizations have come in understanding and meeting their expectations. Our key findings are:

Consumer preferences are strongly impacted by sustainability:

• A significant majority of consumers (79%) are changing their purchase preferences based on sustainability. This contrasts sharply with the 36% of organizations who believe consumers are willing to make this change in their choices/ preferences based on social or environmental impact. Such a gap represents a risk of ~6% of brands and retailers revenue if unaddressed.

• Consumers practice sustainability-led behavior in their daily life (eg, minimizing food waste or using energy-efficient appliances), and in their shopping behavior (eg, preferring products with minimal packaging). They attribute positive emotions such as feeling “happy” when buying sustainable products, which shows the potential for sustainability to impact customer experience, happiness and loyalty.

• However, COVID-19 has made the situation more nuanced, with consumers weighing up safety issues against sustainability goals. For example, we are currently seeing a decrease in demand for used or refurbished products as customers prefer avoiding “touch-based” practices. At the same time, however, consumers are still keen to make sustainability work: – 65% are willing to purchase alternative non-plastic products or packaging than plastics in the light of COVID-19. – 68% want to increase use of local products – they consider it as a perfect blend of “safe” and “sustainable” – Moreover, they do not want companies to abandon sustainability goals and practices in these crucial times.

If they meet these needs, organizations can benefit significantly:

• 77% say their sustainability approaches increase customer loyalty and 63% have seen a revenue uptick. There is a significant opportunity to gain market share given this growing action/intention of consumers to switch based on sustainability.

However, despite the mutual value on offer to both, both consumers and organizations show weaknesses in their thinking and approach:

• Organizations fail to grasp how fundamentally consumer preferences have shifted as a result of sustainability – in terms of trust, loyalty, and price expectations.

• Many consumers are not aware of the environmental or social consequences of many of the common products they purchase and therefore their best intentions go unfulfilled.

We highlight four best practices:

• Empower consumers and employees through awareness, education and choice to to deeply embed sustainability.

• Position technology at the core of sustainability initiatives to drive value

• Build in robust sustainability governance

• Collaborate with the broader ecosystem for a greater impact.

2 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Introduction

Climate change and sustainability issues are top of our social Drawing on that extensive research, our report focuses on: and economic agenda. This is clearly reflected in our research into consumer sentiment and opinion: 1. The importance that consumers and organizations place on sustainability and the impact it has on how consumers • Nearly 80% of consumers want to be able to make a difference in saving the planet for future generations. behave and buy • 77% are concerned about the humane and fair treatment 2. How COVID-19 has impacted sustainability and of workers. safety preferences • 72% are personally concerned about their 3. The benefits organizations are deriving from environmental footprint. sustainability approaches • 66% choose to purchase products or services based on their 4. The differences between perception and practice “environmental friendliness.” in sustainability Clearly, concerns about climate change, pollution, biodiversity 5. The maturity levels of CPR organizations in scaling their loss, resource scarcity, and the wider well-being of society sustainability initiatives means that consumers are posing hard sustainability questions 6. How organizations can accelerate their sustainability to consumer products and retail (CPR) organizations. And, journey. these changing behaviors and values regarding environmental friendliness, social responsibility, and economic inclusiveness are translating into a demand for corporate change. As well as consumers, governments, public-interest groups, investors, competitors, and employees are also pushing CPR organizations to change their ways of working, cultures, and products. These changes have far-reaching implications for the sector and demand that products, services, operations, and ecosystems in which the companies operate are sustainable. To understand where the CPR industry stands today in terms of sustainability, we launched a comprehensive research program, surveying 7,500 consumers and 750 large organizations in this sector. In addition, we conducted one-on- one interviews with a range of sustainability leads from large organizations. More details on the research methodology are found at the end of the report.

3 Defining sustainability in CPR The United Nations definition of sustainable development strives to strike a balance between the present and the future: “Sustainable development has been defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. For sustainable development to be achieved, it is crucial to harmonize three core elements: economic growth, social inclusion and environmental protection. These elements are interconnected, and all are crucial for the well-being of individuals and societies.”1 Using this definition as a basis, we assess sustainability in the consumer products and retail industry along three dimensions: environmental, social, and economic (see Figure 1).

Figure 1. Sustainability framework for consumer products and retail organizations

Environmental friendliness

nitiaties focused on conseration of natural resources reducing carbon and greenhouse gas emissions responsible endoflife disposal etc

Social responsibility

nitiaties focused on safe woring conditions for the worforce fair labor policies and policies against child labor gender discrimination and forced labor etc

Economic inclusiveness

nitiaties focused on fair trade and commitments to a wider cause – poerty reduction education etc

Source: Capgemini Research Institute Analysis.

4 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences This framework – including planet- and human-friendly operations, processes, products, and services – also becomes the basis for how we define sustainability initiatives across the industry’s value chain. As Figure 2 shows, we identified many areas where the industry is pursuing sustainability. These range from sustainable product design and development to broader societal initiatives such as poverty reduction.

Figure 2. Sustainability across the CPR value chain

PRODUCT DESIGN SOURCING MANUFACTURING PACKAGING

1. Circular product design 3. Responsible use of 5. ustainable 8. Recycledrecyclable maimum material natural resources manufacturing process alternatie pacaging recycling after product 4. ue diligence of implementing 9. Refillable packaging usage easily taen apart footprint of the raw maintenance uality into components etc materials and production 2. Product sustainability processes to reduce 10. ustainable products that use less waste and improe warehouse operations water or natural resources recyclability and reuse

building material DISTRIBUTION to manufacture of materials lighting etc 6. se of renewable 11. ower emissions power and focus on route optimiation energy efficiency combining 7. aste reduction trucloads etc 12. tending sustainability to logistics partners

CIRCUAR ECONOMY FUFIMENT STORE OPERATIONS

18. Recycleupcycle 16. ower lastmile 13. Reducing unsold productsused emissions waste instores productspacaging 17. tending 14. Reducing 19. Product as a serice sustainability to consumables in models logistics partners . se of renewable power and focus on energy efficiency

20. air labor policy worer safety policy against child labor policy against forced ABOR labor policy against discrimination fair prices to labor etc

INFORMATION BEYOND TECHNOOGY OPERATIONS

21. nergy usage in data 22. ider initiaties for centers etc humanity

Source: Capgemini Research Institute Analysis.

5 Sustainability is key: Consumers see an emotional connection; organizations see it as a strategic priority

year olds). Sustainability thus makes a difference by touching Sustainability impacts upon the positive emotional aspects of consumers. “There is definitely a change that has taken place in the world in consumers. consumers purchase Specifically, the younger generations – such as GenZ – are really starting to take decisions based on sustainability. Millennials are preferences and makes also sustainability oriented, but they still struggle sometimes to act upon that. But I think GenZ is much more likely to actually change them happy their behaviors,” says Eelco Smit, senior director sustainability More than half (52%) of consumers say that they share an at Philips. emotional connection with products or organizations that From the perspective of countries, 70% of consumers from they perceive as sustainable. As Figure 3 shows, 64% say Italy, 71% from Spain, and 66% from UK agree to feeling happy that buying sustainable products makes them feel happy when buying sustainable products as compared to 58% of about their purchase (and this reaches 72% among 25–35 US consumers.

Figure 3. Consumers share an emotional connect with sustainability Percentage of consumers agreeing to statements below

72% 9% 4% 3% 4% % % % 7% % 2% 3% 4% 4% 4% 4%

erall – – – – – – years years old years old years old years old years old years old and aboe

Buying sustainable products from organizations makes me feel happy when shopping I feel an emotional connection with a productorganization which is sustainableundertakes sustainability initiatives

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

6 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences The emotional connection with sustainability is also reflected Increasingly, organizations are also offering products that in purchase preferences. Overall, 79% of consumers directly address consumers’ sustainability preferences. For are changing purchase preference based on the social instance, P&G introduced Tide Purclean detergent made responsibility, inclusiveness or environmental impact of their from plant-based ingredients. It also launched packaging purchases (see Figure 4). made from recycled beach plastics for its Head and Shoulders brand.2 H&M, to balance the fast fashion impact, allows Of those who have changed preferences, the primary consumers to recycle old clothing in stores for a discount and motivations are: introduced its “Conscious Collection,” which is made of organic • Wanting to make a difference in saving the planet for future or recycled materials. The apparel brand aims to use 100% generations (80%) recycled or other sustainable materials for its production by 2030.3 Likewise, Netherlands-based G Star Raw introduced • Concerns about fair workforce treatment (77%) sustainably manufactured jeans – the water used in production • Concerns about issues like poverty and hunger (76%). is either recycled and reused, or dyes used consume less water, and all the materials used in the jeans are recyclable.4

Figure 4. Consumers are changing purchase preferences based on social, economic, and environmental impact

hae already changed my purchase preferences based on social economic or enironmental impact 42%

am not at all concerned about how my purchase preferences affect the society economy or 79% enironment %

am concerned about the social economic or enironmental impact of my purchase preferences but would not change them may change my purchase 0% preferences based on social economic or enironmental impact 37%

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

7 Consumers practice Across geographies: • 68% of consumers say that they regularly bring their own sustainability in their day-to- bags to do grocery shopping. This can be partly attributed to government restrictions to restrict plastic use and also to day and shopping behavior “changed” consumer preferences to avoid any sort of touch- based practices in the store during the COVID-19 pandemic. Consumers are following sustainability-led practices in their By countries, this is led by the UK (79%), the Netherlands daily life. Our research shows that nearly 60% say that they (77%), Italy (75%), as compared to 41% of consumers from regularly look to minimize household waste and close to half the US. (45%) regularly use energy efficient appliances. For instance, • 42% say they regularly ensure that product packaging is because Sweden’s population has embraced the need to sort recycled. This is led by 66% of consumers from Spain and and segregate household waste, the country is able to operate 65% from Sweden, as compared to 35% from the US. more than 34 “waste-to-energy” power plants that generate enough electricity to power 250,000 households.5

Figure 5. Consumers adopt sustainable behavior in their purchases and daily life Integrated Product Vision Consumer Shopping Behaviour

Searching for products 42% chec whether products Purchasing contain naturalhealthy Product preferences % 42% bring my own ingredients purchase seasonallocally bags when go made products grocery shopping

Packaging preference 3% purchase products with minimalno pacaging

ast mile Post purchase 4% 42% prefer not ordering ensure that the fastest deliery product pacaging is timeslot for products recycled not needed uicly

Consumer Day To Day Behaviour

minimie use repair items instead 37% 0% household food 4% energy-efficient of replacing them waste appliances

Consumers who regularly do this

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

8 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences As a result, consumers also pay close attention to the • Less than half (45%) say their retailer has stopped giving sustainability initiatives of retail organizations they engage single-use plastic bags with. And, there is a clear sense that they are underwhelmed • Only 36% think packaging is ‘ecofriendly’ (see Figure 6). by the pace of change they are seeing:

Figure 6. Consumers pay attention to sustainability-led initiatives taken by retailers

Percentage of consumers agreeing to the various sustainability initiatives from the retailers they frequently shop with

My retailer has stopped giving single-use plastic bags in stores to 4% carry products

My retailer has recycling initiatives in-store 37%

he packaging of products in stores is minimal and 3% ecofriendly

My retailer is taking visible measures to reduce 3% losing energy

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

• Sector wise, consumers say many of the initiatives are and leak reduction initiatives for refrigerants in its stores to taken by their grocers, with 54% agreeing that their grocer conserve energy – and these kinds of initiatives are being has stopped using single-use plastics; and 53% agreeing noticed and appreciated by consumers.6 that their grocer has recycling initiatives in store and take • Country wise, 58% of French consumers, followed by 49% visible energy conservations measures (e.g. doors in front of from UK and 47% from the Netherlands agree that their fridges, keeping temperature maintained in store by door retailers have stopped using single use plastic bags in stores closing, etc.). For instance, US-based Kroger supermarkets is to carry products, in contrast with only 28% from the US. investing in low-carbon refrigerants, LED lights retrofitting,

Overall, 79% of consumers are changing purchase preference based on the social responsibility, inclusiveness or environmental impact of their purchases.

9 consortia of large companies across the world are coming up with Sustainability is a strategic initiatives and/or are taking over initiative from governments. At FrieslandCampina, we have a strong track record of “act priority for consumer products and measure”. We have stepped up our game and are used to cooperate with others, even competitors, to solve strategic and retail organizations collective challenges. We call this “Cooperative Sustainability”, and Ynte de Vries, program manager for Farm Energy at we believe it is the key to actually achieve results that matter.” FrieslandCampina – a Dutch multinational dairy cooperative Our interviews with over 750 executives in the consumer – says, “Our member dairy farmers are committed to producing products and retail industry confirms how important this issue milk in the most sustainable way possible. Sustainable business is to organizations: operations are the core of our member dairy farmers’ work since we started almost 150 years ago. One can say, caring for • 90% say sustainability is highly important for the industry animals and nature is part of our DNA. More recently, we see • 75% believe that they have a strategy, infrastructure, a growing interest in sustainability around us. Customers and and resources in place to drive sustainability and circular consumers realize the importance of the topic and have started economy efforts asking questions. For larger companies it is now a strategic • Two thirds (66%) say that sustainability is fully integrated priority to be able to answer these questions and to start working into their business objectives. (see Figure 7). on these issues in a collective way. This is why you now see

Figure 7. Sustainability is a strategic priority for consumer products and retail industry

Percentage of executives agreeing to statements below

90% Sustainability is highly important for my % industry 9%

We believe that we have the 7% strategy, infrastructure, and resources to drive 7% sustainability and circular economy initiatives 73%

% Sustainability is fully integrated into our 9% business obectives 4%

Overall CPR industry Consumer products manufacturing Retail

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April-May 2020, N=750 consumer products and retail organizations; N=400 consumer products manufacturing organizations; N=350 retail organizations.

Our research on digital transformation priorities in the light of • In the case of retail, it is an immediate priority for 30% of COVID-19 outbreak echoes the same views.7 retailers, and a key priority in next 6–12 months for 41% retail organizations. • 18% of consumer goods manufacturing firms consider sustainability and enhancing purpose as an immediate priority, and 47% consider this as a key priority in next 6–12 months.

10 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences The COVID-19 pandemic has added a safety dimension to sustainability that consumers and organizations must now balance The COVID-19 situation has heightened consumer preferences for health and safety practices. Our earlier research on impact on consumer behavior due to COVID-19 highlighted that 77% of consumers will be more cautious about cleanliness, health, and safety in the post-pandemic era; and 62% of consumers will shift to brands and retailers who continue to exhibit higher levels of product safety.8 In our current research as well, this trend of focus on safety is validated. Consumers are putting a safety lens to a few sustainability initiatives in the short run – and we see implications both positive and negative with respect to sustainability (see Figure 8). Concerns over safety and hygiene have eclipsed sustainable packaging preferences

As consumers adopt a more cautious approach towards touch-based practices, they prioritize packaging hygiene. As Figure 8 shows:

– 53% of consumers plan to reduce use of as-a-subscription model (items in refillable packaging, etc.). – 40% plan to reduce purchase of used/refurbished products. – Our previous research on COVID and consumer behavior also found that nearly 40% of consumers prefer their products in disposable packaging due to health and safety concerns.9

Figure 8. Consumers COVID-19 has heightened consumers focus on safety practices

In the light of COVID-9, in the next 2 months ...

I prefer to reduce as-a-subscription 3% models (items in refillable packaging)

I prefer to reduce purchase of 40% usedrefurbished products

I prefer to purchase products in 40% disposable packaging*

* Datapoint from our previous research.

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers; Capgemini Research Institute, Consumer Behavior Survey, April 4–8, 2020, N=11,281 consumers.

11 As a result, organizations have had to re-assess what was previously considered sustainable best practice. For instance, Starbucks has temporarily banned reusable cups in response to the coronavirus outbreak.10 California has lifted the ban on the use of single use plastic bags in supermarkets for 60 days.11 Moreover, 78% organizations in our research agree that their business models and practices will be reassessed from a health and safety perspective and they will explore new models in sourcing, packaging, etc. At a segment level, this is led by food and beverage firms (87%) and grocery retailers (84%). Consumers perceive local products as a perfect blend of “safe” and “sustainable”

The current pandemic has reinforced consumer preferences for locally sourced products. Our research reveals that 68% of consumers plan to purchase more locally made products rather than imported or non-local products in the next 12 months (see Figure 9). This trend is driven by a number of factors – the perceived level of safety in local products, greater trust and traceability of local products over imported ones, the smaller carbon footprint of local products, and a sense of supporting local communities. – Age wise, this appetite is strong across all age groups of consumers – Country wise, this is more pronounced in India, Italy, and France.

Figure 9. Consumer preferences towards localism are high

In the light of COVID-9, I prefer to purchase more locally made/produced products rather than imported/non-local products in the next 2 months

4% 0% 77% % 72% 3% 4% 9% 0% 2%

erall weden rance ermany etherlands taly pain ndia

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

Ylenia Tommasato, brand sustainability and communication is intertwined with being ‘planet worthy.’ So, I believe that the manager at Italy’s Barilla Group – a large food corporation – sustainability agenda for our company and for the whole world agrees. “As a result of the pandemic, I believe that there is a huge will be quite intense over the next few years,” she says. trend towards localism, more plant-based food, and eCommerce. As a company, we have to accelerate those models and channels, but we always keep sustainability in mind. That is because now, more than ever, we have seen how ‘people’s well-being’

12 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Pia Heidenmark Cook, chief sustainability officer at Ingka Consumers expect Group, echoes this sentiment, saying, “COVID has accelerated a lot of people’s thinking on health and well-being. This is not organizations to live only for themselves and their families and communities, but also for the planet. People have started to realize how things are to their “purpose” and interconnected and how vulnerable we are.” “sustainability” credentials: Consumers understand that organizations are facing economic pressures in light of the COVID-19 situation. However, Earlier research that we conducted into consumer behavior in they expect businesses to step up and act on sustainability the pandemic highlights the following: issues; and they will closely scrutinize the actions taken by – 67% of consumers said that they will be more cautious organizations to separate those companies that are truly about the scarcity of natural resources due to the committed to sustainability, from those that COVID-19 crisis. are “greenwashing.” – 65% said that they will be more mindful about the impact of their overall consumption in the “new normal.” – 78% of consumers believe that companies have a larger role to play in society12 – A majority (over 53%) prefer to engage with CPR companies that showcase strong sustainability credentials and embody a sense of purpose.13

“Sustainability is a journey, but can also be seen as a mosaic.Every single project or phase of the value chain is a piece of this mosaic. And, as in any mosaic, each piece can be of different shape, size or color, but when put together with the other pieces it gives you the sustainability journey and the sustainability overview of the company.”

Elena Dimichino, Sustainability Director at Luxottica

13 Sustainable organizations derive significant customer-facing and financial benefits

There is a common misconception that putting resources sustainability at Philips says, “There’s no reason why you into sustainability comes at a cost, with attention diverted cannot be sustainable and profitable. Look at the sustainable from core business priorities. However, various studies from brand index, as well as the niche players – we are getting to a the World Economic Forum, among others, finds a positive position where consumers are starting to reward sustainable connection between eco-innovation and increased financial brands. This has also made it possible for organizations to and other performance.14 further invest in sustainability. This idea that sustainability costs money and will impact profitability is very dated. We have to Our research also finds a strong connection between move away from that paradigm. It’s simply not true" sustainability and business benefits (see Figure 10): We see several examples of organizations using innovative • Nearly 80% of executives pointed to an increase in customer approaches to make their operations more sustainable and, in loyalty as a key benefit from sustainability initiatives. return, gaining consumer trust, confidence, revenue, • Over two thirds (69%) pointed to an increase in brand value. and profitability. The impact of sustainability credentials on brand value and sales is supported by our consumer research: if consumers – For instance, the collaboration between Adidas and perceive that the brands they are buying from are not “Parley for the Oceans” led to the company selling more environmentally sustainable or socially responsible, 70% tell their friends and family about the experience and urge than one million sneakers made with recycled ocean 15 them not to interact with the organization. plastic in 2017. • 68% of the organizations also point to improvement in – Unilever’s “Sustainable Living Brands” are growing 69% environmental, social and governance (ESG) ratings of their faster than the rest of the business and delivering 75% of organization driven by sustainability initiatives the company’s growth.16 • Nearly 63% of organizations also said that sustainability initiatives helped boost revenues. Eelco Smit, senior director

“There’s no reason why you cannot be sustainable and profitable. Look at the sustainable brand index, as well as the niche players – we are getting to a position where consumers are starting to reward sustainable brands. This has also made it possible for organizations to further invest in sustainability. This idea that sustainability costs money and will impact profitability is very dated. We have to move away from that paradigm. It’s simply not true.”

Eelco Smit, Senior Director Sustainability at Philips

14 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Figure 10. Key benefits derived from sustainability initiatives

Percentage of organizations agreeing to the benefits below

Increase in consumer loyalty 77%

Increase in brand value 9%

Increase in brand 9% recommendations Improvement in ES rating % of the company Increase in employee motivation levels 7% Increase in customer % satisfaction scores

Increase in total revenue 3%

Increase in supplier loyalty %

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

Moreover, many sustainability initiatives, be waste reduction We also see that people want to work with and for Philips. We are or energy efficiency, lead to cost-savings. Eelco Smit, senior convinced that we get access to higher quality talent because we director sustainability at Philips sums it up, saying, "We see have a clear purpose as a company. All these elements are benefits the rewards of sustainability coming from different stakeholders. and obviously there are still some cost-saving opportunities. For Investors are rewarding us by either buying more shares or sticking example, reducing electricity brings cost saving and improving the with the shares for a longer period of time. Retailers are rewarding recyclability of our waste streams improves profitability. There are us by giving us more shelf space or more presence in online stores. many benefits of doing things this way.” GenZ consumers are increasingly buying from sustainable brands.

Circular is a key enabler for us to become climate positive, because we have a climate footprint fixed in the products we sell, the materials we choose for our products, and the production and the transport of our products. The IKEA ambition to become a circular business by 2030 meaning designing all products with circular principles in mind, using renewable or recycled materials and working with customers to keep products in use for longer.

Pia Heidenmark Cook, Chief Sustainability Officer at Ingka Group.

15 There is a significant gap between perception and practice of sustainability

Consumer think their level of awareness of sustainable Consumers think they products is high, and organizations feel that people are also up practice sustainability, but to speed: • Only 38% consumers say they do not have the do not always grasp the awareness to differentiate sustainable products from non-sustainable products. cold reality of a product’s • 76% of executives say that consumers are aware of the “sustainability consequences” of their purchase decisions, impact on the environment such as comprehending the total environmental impact of a product. Consumers value sustainability and feel it is their moral However, despite the faith that executives have, we found that responsibility to make sustainable purchases. Nearly 80% of most consumers are not aware of the environmental or social consumers say they want to be able to make a difference in consequences of many of the products they purchased: saving the planet for future generations. More than 74% of consumers feel purchasing sustainable products is a moral • 78% of consumers were not aware that it takes 1,000 liters responsibility. Given the high ambitions of consumers to be of water to produce a chocolate bar. sustainable, a key question is how aware consumers are on • 68% of consumers were not aware that an average burger the topic of sustainability and whether they understand the patty results in more emissions than driving 15 km in a consequences of purchasing products from a large car. sustainability perspective. • 61% of consumers were not aware it takes 7,500 liters of water to produce a pair of jeans.

Figure 11. Consumers awareness of impact of their everyday purchase decisions

Product or service Share of consumers purchased in the Sustainability issue associated with the product or service who are not aware of past one year the environmental issue

ought a bar of One thousand liters of water are used to produce one chocolate chocolate bar.

Purchased The average burger patty results in more carbon emissions than a burger driving 15 km in a large car

Purchased a pair It takes around 7,500 liters of water to make a single of eans pair of jeans

rdered online Nearly one-third of solid waste in the US comes from deliery e-commerce packaging

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

16 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Alberto Chiappinotto, Global Climate Neutral Project Manager Industrial Operation at Electrolux agrees, “The customers want sustainability, but not always they know what it means to develop a sustainable products; here it's where we have to create culture if we want grow and move forward." Moreover, once consumers are made aware of the true sustainability impact of a product, they become very determined to change their behavior. Nearly 68% of consumers who purchased the products mentioned in Figure 11 were willing to purchase a more sustainable product once they were made aware of the sustainability issues. This highlights the need for more sustainability-related information to be available for consumers and reinforces the importance of brands driving the sustainability agenda. For example, Levi Strauss & Co. CEO Chip Bergh has said, “We want to use less water, the most precious resource in the world today, and this industry uses a lot of water.”17 Levi’s now uses a “waterless technology,” which reduces the water required in the denim finishing process by 96%.18 Consumers do not trust sustainability claims made by organizations

Organizations understand that consumers place a high importance on sustainability. Nearly 70% of executives say that their consumers are willing to put in more effort to purchasing products they perceive as sustainable. Organizations see sustainability as a key priority, and many will be implementing multiple initiatives to make their products more sustainable. However, these efforts are not always trusted by consumers. As Figure 12 shows: • 65% of executives say their consumers are very much aware of their sustainability initiatives. • However, close to half of consumers (49%) say they do not have any information to verify the sustainability claims of products and 44% say they do not trust product sustainability claims. Building consumer trust is critical for organizations given the low consumer trust on sustainability claims – educating consumers on the sustainability issues and certifications will be required to achieve this.

Figure 12. Consumers do not trust sustainability claims

9% 70% % % 7% 7% 3% 0% 2% % % % 4% 4% % 49% 0% 4% 4% 4% 4% 44% 44% 44% 43% 43% 39% 4% 40% 33%

lobal weden rance ermany etherlands taly pain ndia

Share of organizations claiming consumers are highly aware of their sustainability initiatives Share of consumers who say they do not have any information to verify the sustainablity claims made by these products Share of consumers who say they do not trust the sustainability claims made by these products

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March-May 2020, N=7,520 consumers; N=750 consumer products and retail organizations.

17 • Only 36% of organizations say that consumers are willing Organizations are yet to to change their choices/preferences based on social or environmental impact. come to terms with how • However, as we saw earlier, 79% of consumers have signaled their intention of changing based on social, inclusive, or fundamentally consumer environmental grounds – 42% having already changed and preferences have shifted 37% planning to do so (see Figure 13).

Organizations, while they recognize the importance of sustainability, are yet to accept the fact that consumers will change their purchase preference based on sustainability factors alone:

Figure 13. Gap in organization perception vs consumer preferences on willingness to shift purchases

Our consumers are willing to change their choicespreferences based on 3% socialenvironmental impact

I have already changedmay change my purchase preferences based on 79% social, economic or environmental impact

Organizational perception Consumer view

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March-May 2020, N=7,520 consumers; N=750 consumer products and retail organizations.

The trend to switch the preferences based on sustainability At a country level, this perception gap is most pronounced factors will also impact well-known brands: in Italy, France, and Spain (see Figure 14). Citizens in these countries exhibit high levels of sustainability traits which are • We found 53% of consumers overall and 57% of consumers above global averages. For instance, citizens in France take an in the 18–24 age group have switched to lesser-known extra effort to purchase sustainable products such as buying brands if they are sustainable. in bulk ( France – 54%, global – 49%). Citizens in Spain care • However only 24% of executives say their consumers are more about sustainability ( Spain – 78%, global – 66%) and willing to switch from a well-known brand to an unknown citizens in Italy say it is their personal responsibility to become brand that they perceive as sustainable. sustainable ( Italy – 77%, global – 72%)

“The customers want sustainability, but not always they know what it means to develop a sustainable products; here it's where we have to create culture if we want grow and move forward."

Alberto Chiappinotto, Global Climate Neutral Project Manager Industrial Operation at Electrolux

18 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Figure 14. Gap in organization perception vs consumer preferences on willingness to shift to less-known brands

% 0% % 9% 3% 0% 49% 4% 43% 39% 3% 37% 2% 2% 24% 24% 7% 7% 4% 2%

lobal weden rance ermany etherlands taly pain ndia

Share of consumers who have switched to lesser-known brand(s)organization(s) whose productspractices they perceive as more sustainable Share of organizations which say their consumers are willing to switch from a well-known brand(s) to unknown brand(s) that they perceive as sustainable

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March–May 2020, N=7,520 consumers; N=750 consumer products and retail organizations.

Infact, lagging on sustainability is a missed revenue opportunity for retail and consumer products organizations. On the basis of responses from our consumer survey, we did an additional analysis to understand what will be the impact of “not” being sustainable on organizations. We found that it is ~6% missed revenue opportunity for organizations, if they do not focus on sustainability practices (see Figure 15). There are significant variations by geographies – as the most profound impact can be seen in Italy, Sweden and Spain. (the detailed methodology can be found in Appendix 1).

Figure 15. Potential loss of revenue for organizations from the growing disconnect between consumer intent to switch and organizations belief they will do this

Missed revenue for the organization when sustainability practices are not adopted in %

7.% 7.2% .% .% .% .0% 4.% 4.% 3.% 3.%

lobal taly weden pain ndia rance etherlands ermany

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers; Capgemini Research Institute Analysis

19 Organizations are not aware that consumers do not necessarily associate sustainability with a price premium

Consumers expect sustainability and a clear corporate purpose to be the “new normal” for CPR companies. But organizations associate sustainability with a premium: 59% say consumers are willing to pay a price premium for the products/brands they perceive as sustainable. However, consumers do not expect sustainability to come at a high price: • 65% say that sustainable products do not need to be more expensive than similar products that are non-sustainable. • Close to 40% overall also say that have paid less than average price for products that they perceive as sustainable. Of that nearly half of the younger demographic (18–35 years) has paid lower-than-average prices for sustainable products as compared to other age groups (see Figure 16). • Although 57% have paid higher-than-average prices for products that they think are sustainable, two thirds have only paid up to 10% more on average.

Figure 16. Younger demographics have paid less than average price for purchase of sustainable products.

Share of cosumers who paid more than or less than average prices

47% 2% -24 years old 4% % 2-3 years old 4% 2% 3-4 years old 4- 3% 4% years old -0 32% 0% years old - 2% % years old

years and 29% 4% above

3% 7% Overall

I have paid lower-than-average price for products that I perceive as sustainable I have paid higher-than-average price for products that I perceive as sustainable

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

Given the high share of consumers (especially the younger population) who have purchased sustainable products at lower prices, and the price premium of sustainability being less than 10% for two thirds of customers – organizations need to closely examine the pricing for sustainable products and come up with products that are affordable and sustainable. A number of organizations are moving to a new model that is sustainable and cost effective. For instance, Allbirds – a sustainable sneaker brand that makes its products from plant-based materials – positions itself as an affordable, cost-effective brand. This is driven by low production costs – a result of minimal variety in raw materials and designs used in production.19

20 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences The implementation of sustainability across CPR organizations is fragmented and fails to achieve scale For sustainability to meet the ambitious goals of the industry, mean initiatives that are implemented at a larger scale across it needs to be pursued across the value chain and actively different business units and geographies. scaled across regions. Elena Dimichino, sustainability director • The most commonly scaled initiatives are fair labor policies at Luxottica – a leading Italian eyewear conglomerate – says, and safe working conditions – with 48% organizations “Sustainability is a journey, but can also be seen as a mosaic. Every claiming to have achieved scale in these areas. single project or phase of the value chain is a piece of this mosaic. • In contrast, sustainable IT, which involves reducing the And, as in any mosaic, each piece can be of different shape, size or impact of the digital footprint (such as energy efficiency color, but when put together with the other pieces it gives you the in data centers) is only being scaled by just 18% of the sustainability journey and the sustainability overview of organizations. With COVID-19, as the trend of digital the company.” engagement and eCommerce grows, it also bolsters As mentioned previously, 75% of CPR organizations claim to operations at data centers. So, looking at measures of have a strategy, infrastructure, and resources in place to drive making them energy efficient, powering them with sustainability and circular economy efforts. To assess the renewable energy, and reducing water usage, etc. maturity of CPR organizations, we analyzed the deployment become critical. of those sustainability initiatives we defined earlier in Figure 2, As Figure 17 shows, nearly half of the organizations have from “Sustainable product design” to “Sustainability started to deploy sustainability initiatives across some of beyond operations”: the regions in which they operate. However, when it comes It is clear that some initiatives receive significant attention, to achieving scale across regions, fewer than a quarter have but there is not a consistent focus on the entire value chain. achieved widespread coverage. More importantly, very few initiatives are scaled – by which we

Figure 17. Sustainability maturity across the value chain is low

Percentage of organizations agreeing to 9% the maturity of sustainability across value-chain areas % 49% 47% 47% 4% 4% 47% 4% 43% 4% 39% 3% 2% 24% 22% 22% 2% 20% 2% 20% %

Product ourcing anufacturing Pacaging istribution tore Fulfillment ndoflife abor eyond design operations returnsCircularity operations Deploying in some regions Scaling across regions Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

21 Sustainability at scale: maturity within subsectors Even at a subsector level, a maturity assessment of success at delivering scale in sustainability finds that highly mature approaches are still relatively rare. However, there are significant variations across consumer products and retail subsectors. Within consumer products manufacturing, food and beverages and household care products have scaled sustainability across multiple areas of the value chain. However, consumer white goods lags behind, especially in the areas of sourcing, logistics, packaging, IT, and beyond operations (see Figure 18).

Figure 18. Sustainability scaling* maturity in consumer products manufacturing subsectors

Product design

Sourcing

Manufacturing

Packaging

Distribution

Fulfillment

Circular economy

abor

IT

Beyond operations

Consumer white Household care ood and pparels uury goods Personal care goods products beerages accessories and products manufacturing manufacturing manufacturing footwear manufacturing manufacturing Sustainability scaling maturity High erage ow less than *Scaling refers to extending the sustainability initiatives across the regions and business units in which the organization operates. Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

22 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Figure 19. Sustainability scaling* maturity in retail subsectors

Similarly, in retail, grocery retail leads the way, with higher maturity in the areas of sourcing, store operations, packaging and labor. However, fashion retail trails, particularly in the areas of sourcing, distribution, fulfillment, circular economy, and “beyond operations” (see Figure 19).

Product design

Sourcing

Distribution

Packaging

Store operations

Fulfillment

Circular economy

abor

IT

Beyond operations

Home ashion Consumer white rocery improement and retail goods retail retail furniture retail

Sustainability scaling maturity High erage ow less than

*Scaling refers to extending the sustainability initiatives across the regions and business units in which the organization operates. Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April-May 2020, N=750 consumer products and retail organizations.

23 Looking at the individual functional areas in more detail, we found organizations focusing on a few specific initiatives in particular. Figure 20 gives a snapshot of the top initiatives scaled in a range of areas, from product design to beyond operations contributing towards broader communities and society.

Figure 20. Sustainability maturity within the value chain areas is fragmented

Sourcing only recycled/ recyclable Recycling Refillable models: Sourcing Demand- Clear materials: 2% water: % % products driven recycling not tested manufacturing: instructions: on animals: Water usage as a 3% 3% Using recycled/ Circular product 43% sourcing criteria: Renewable recyclable design: 20% 4% power: 4% packaging: %

Product design Sourcing Manufacturing Packaging

msterdambased Patagonias cotton is n nileer cut the estl is piloting reusable and smartphone company certified by the Global amount of water abstracted refillable dispensers in stores airphone has created rganic etile tandard by their factories by 47% per for pet care and soluble coffee. modular smartphones – (GOTS), 72% of their lines ton of production since 2008 rals eed Phytonutrients which are designed to be are made with recycled through initiaties lie rain beauty range offers personal easily repaired and raw materials and 76% of water haresting acuum care products pacaged in upgraded their line is air rade pump optimiation compostable bottles made from Certified metering and solar water paper24 heating

Delivery Energy Waste Route EVs for freight from EVs/bi-cycles for efficiency: segregation: optimiz- transportation b/w nearby last-mile delivery: 40% 3% % ation: 3% stores/DCs: % point: 3% Renewable power: 4%

Fulfillment Store operations Distribution

• Amazon India said its fleet of esco in reland used and o based esco Chinas deliery ehicles in the country based smart energy serices to cut com and libaba are will include electric total annual energy bills by 25%.26 some of the retailers 28 ehicles by stores are plastered with more implementing based than solar panels and has optimied routing more than onsite wind turbines n ept it announced that it will be able to produce more renewable electricity than it uses in all of its stores27

Supporting local Offering Safe Reducing Product-as- societal challenges incentives working Fair labor digital a-service schooling, facilitating local to return: conditions; policy: 2% footprint: models: 9% food banks etc.: 22% % 4% %

Information Circular Economy abor Beyond operations Technology

ince H has had collection iamond company e • Walmart is focusing on ootwear brand points in its stores for customers to eers rolled out a reducing the energy usage donates a pair of shoes to a drop bags of new or worn clothes. For blocchain tool called in their data centers in the disadvantaged child for eery bag they receie a oucher Tracr to track the paths of way they design procure eery pair that it sells o towards their net purchase diamonds from mines to operate monitor and far, TOMS has given away • Mondelēz partnered with cutters to polishers to maintain their systems million pairs since erraCycles oop to tacle pacaging confirm they’re not being 2006. waste with a subscriptionbased model used to support for distributing consumer goods to iolence homes in reusable containers *Note: % in boxes represents the percent of organizations scaling the initiative (extending the initiative across the regions and business units the organization operates in). Most scaled initiatives in function Least scaled initiatives in function Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations; Capgemini Research Institute Analysis.

24 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Circular economy – an imperative in the new normal “The circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems” – Ellen MacArthur Foundation definition. Major developed markets are putting an increasing focus on the circular economy. For example, when the “European Green Deal” was launched, it outlined circular economy savings of about €600 billion for EU organizations.34 The revised European Green Deal framework of December 2019 also highlights the circular economy as the key contributor to achieving the EU’s ambition of net-zero carbon emissions by 2050.35 It is important for organizations to consider the ways in which a product is designed, used, and disposed of. However, very few organizations are focusing on circular economy initiatives to achieve this or have significant plans. Our research shows that: – Only 18% of executives say they have invested in circular economy initiatives. – Only 35% plan to invest in this area in the next three years, signaling that more needs to be done. The circular economy requires organizations to understand the sustainability impact of each part of their value chain, starting from product design. In Figure 21, we outline the broad framework that can help organizations understand and assess their current impact and identify opportunities to embrace circular economy principles.36

Figure 21. Framework for enabling the circular economy

euce Switch design euse ecce components to favor Identify how the • Offer collection sustainable product or product points for product materials, identify components can be disposal and identify elements which can reused by customers the materials which be taken out of or other can be recycled and the product organizations used in other lifecycle products epair Identify the eurish resources required to nderstand how this offer repair to product can be customers and remanufactured and provide materials sold again required for repair

Source: Capgemini,” Loops of life, how consumer products and retail brands can build value and resiliency through the circular economy; Capgemini Research Institute Analysis.

A number of leading organizations have started initiatives in the refillable/reusable packaging space. Loop, a platform that partners with multiple firms such as Unilever, Procter & Gamble, Nestlé, Coca-Cola, and PepsiCo, offers subscriptions to common products such as shampoo, detergent and ice cream in reusable packaging.37 The pilot for this platform began in New York and Paris in 2019 and witnessed high consumer interest.38 Netherlands- based Mud Jeans offers jeans as-a-service business model, in which customers lease their product so that raw materials flow back into new products at the end of their life.39

25 Pia Heidenmark Cook, chief sustainability officer at Ingka Group, adds, “Circular is a key enabler for us to become climate positive, because we have a climate footprint fixed in the products we sell, the materials we choose for our products, and the production and the transport of our products. The IKEA ambition to become a circular business by 2030 meaning designing all products with circular principles in mind, using renewable or recycled materials and working with customers to keep products in use for longer." Two key factors drive this change: • Technologies such as AI, automation, analytics, and 3D printing that establish visibility, agility, and aid innovation • Expanding beyond internal boundaries to create collaborative network systems among the entire network – suppliers, manufacturers, distributors, and peers to broaden opportunities for recycling, reuse, etc. We examine these two factors later in the report.

When asked about the challenges faced by organizations in scaling sustainability, many factors came to the fore. Four in five (80%) of organizations mentioned the impact on margins or cost overruns as a key challenge in the way of sustainability and close to three-quarters point to the fact that other issues or opportunities take priority over sustainability. Ylenia Tommasato, brand sustainability and communication manager at Barilla Group, says, “Internal challenges are the key issue that organizations face in deploying sustainability initiatives. For sustainability initiatives to thrive, you really need to have a single-minded approach from top-down or from bottom-up, and the entire organization needs to be aligned on the priorities.” Pia Heidenmark Cook, chief sustainability officer at Ingka Group, adds, “I think a challenge that many organizations face is change management. A perception many organizations have is that sustainability is more expensive. However, they do not realize that initiatives such as waste reduction or energy efficiency will reduce your operational costs. So, I would say the key challenge that stands in the way of sustainability is change management – showing the business case, why it makes sense, and influencing and inspiring people to understand why it makes a difference.” As previously mentioned, sustainability yields benefit for the businesses. The key question is how to overcome challenges mentioned by executives and how to scale sustainability. In the next section, we focus on key actions that the consumer products and retail organizations must take to accelerate sustainability programs in the long run.

“Internal challenges are the key issue that organizations face in deploying sustainability initiatives. For sustainability initiatives to thrive, you really need to have a single-minded approach from top-down or from bottom-up, and the entire organization needs to be aligned on the priorities.”

Ylenia Tommasato, Brand Sustainability and Communication Manager at Barilla Group

26 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences How can CPR organizations accelerate sustainability? To understand how organizations can accelerate their and recyclable while maintaining the same look and feel as the sustainability strategy and deliver their goals, we wanted classic Starbucks cup.40 to identify the best practices of the organizations that Based on our research – as well as in-depth interviews with are leading in this field. Organizations must look at their industry executives – this section highlights the winning sustainability initiatives from a safety perspective due to practices of high performers, pinpointing the areas that others COVID-19. For instance, Starbucks is now trialing “greener can emulate to drive their sustainability programs cup technology” in select stores. The new cup uses the (see Figure 22). BioPBS™ liner, which makes the cup certified compostable

Figure 22. Sustainability best practices for the consumer products and retail industry

Collaborate with the Empower consumers broader ecosystem and employees stablish endtoend mpower employees to isibility of ey ecosystem practise sustainable

partners TE E behaiour internally RA D hare sustainability O U ducate consumers through goals wor with the B C education awareness A A partners to drie action T and choice E

and share accountability O

C or with peer

Accelerating

networs

sustainability

A

C

N

T

R

Bring in robust I Position technology E V

A V

T

governance O at the core

E

G

nsure top leadership is nclude sustainability as committed and accountable a basic principle for oo at a central goerning business case structure and a federated ap the technology use deliery cases to the broader lign Ps with established sustainability goals framewors measure easure success and audit Source: Capgemini Research Institute Analysis. Empower consumers and There are a number of ways to tackle these issues: • Empower employees to practice sustainable behavior employees to embed internally within the organization Executives tell us that the main drivers for their sustainable practices sustainability initiatives are to explore business opportunities across markets (74%) and to match up with In order to accelerate the adoption of sustainability initiatives competitive pressure (70%). However, only 55% say that the across the value chain, organization need to focus on two driver for sustainability initiatives is their own commitment areas to drive fast adoption: to environment protection, conservation and societal • Empower employees to practice sustainable behavior well-being. internally within the organization • At the same time, educate and empower consumers to improve awareness about sustainability.

27 This is also reflected in the lack of commitment to encouraging employees to be more sustainable. We their purpose and sustainability-led ambitions as suited to found that: their budgets and lifestyles. This means evaluating product range, pricing as well as the role loyalty and reward can play – Only 43% of executives say that the driver for in driving positive incentives for change sustainability initiatives is to motivate and address employees’ sustainability preferences. Product certification is another way to drive this. – Only 15% of executives say they are currently focusing Most consumers consider certifications logos (60%) sustainability initiatives internally within their as trustworthy. Increasing consumer awareness and organization, such as building ecofriendly campuses. trust on the certification logos will be key to build consumer knowledge on the sustainability initiatives. Few However, a number of companies are taking a lead here. For organizations are already working in this area and being instance, Eelco Smit, senior director sustainability at Philips the first mover to drive sustainability certifications. Ynte de says, “Today’s younger generation are looking for purpose in Vries, Program manager Farm Energy at FrieslandCampina, their jobs. As a company, we want talented employees to join highlights the importance of this topic, saying: “We agree us and today these talented people take conscious decisions consumers should become more aware of which products are about which company they want to work. We are committed to produced in a more sustainable way. With all kinds of initiatives, embedding sustainability - with its societal and environmental that is not easy for them to distinct. Therefore we also believe in focus, into our organization and culture , which also helps to independent certificates, to help them make the right choice. So attract top talent.” for instance, we have dairy with the independent On the Way to Driving sustainability within the organization – and PlanetProof quality mark, for consumers who want dairy that encouraging employees to become sustainability champions scores high on Biodiversity, Climate and Animal Welfare. It is a – will help infuse sustainability into the organization’s value high standard and we are the first large Dairy Company to offer chain from the ground up. Karen Hamilton – global vice dairy with this quality mark. So we see that we need to do more president for sustainability at Unilever –says, “We really to help consumers understand what it is. That’s also why we want everybody in the company to live our purpose, which is to as companies need to work together: to take measurable steps make sustainable living commonplace.”41 This sentiment is also in the right direction and create clarity so that consumers can echoed by Virginie Helias, chief sustainability officer, P&G, make the right choices.” “Sustainability isn’t about asking [employees] to turn off lights. It’s about finding how it can be a driver for everything they do in Position technology at the terms of innovation and growth.”42 P&G is working to engage, equip and reward employees for building sustainability core of sustainability initiatives thinking and practices into their everyday work as part of their environmental sustainability goals for 2030.43 Technology opens new frontiers to manage and scale up sustainability initiatives. New technologies also help • Educate and empower consumers to improve awareness organizations to leapfrog sustainability initiatives. For about sustainability: instance, some firms are developing solutions for households Organizations must play a key role in highlighting the that have no access to electricity in sub-Saharan Africa, sustainability footprint of their products as consumer providing them with power from solar energy.45 awareness of the environmental impact of many products is low. For instance, Unilever is planning to show how Our research reveals that organizations are planning to much greenhouse gas was emitted in the process of invest across a range of emerging technologies to drive their manufacturing and shipping their products to consumers.44 sustainability initiatives (see Figure 23).

They must also ensure that they empower consumers with choice of products and services that help them balance

28 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Figure 23. Organizations are investing in varied emerging technologies in the next one to three years to boost their sustainability initiatives.

Which of these emerging technologies is your organization planning to invest in the next one to three years to drive sustainability initiatives

ARVR 3%

RFID 9%

3D printing 49%

5 47%

IOIIO sensors 47%

Artificial intelligence/ machine learning 47%

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

We see some interesting use cases of these technologies across the value chain; and some leading examples where organizations are already leveraging these technologies for sustainability and gaining various business benefits like cost savings, profitability, revenue:

AI and advanced sensors: LG TurboWash 360 washers and dryers not only detect the volume and weight of each unique laundry load, but also use AI and advanced sensors to identify fabric types in each load. Using AI, the washer compares this information against more than 20,000 data points related to washer usage to program the optimal wash cycle setting, improving cleaning performance and extending the life of garments by 15%. This reduces the impact of textile and garment waste on the environment.46 Product Innovation 3D printing: enables the manufacturing industry to produce less waste, less inventory and less CO2 emissions. In 2018, Nike announced that it was using 3D printing technology – Flyprint – to design the synthetic upper portion of some of its shoes.47

Blockchain: In sourcing, organizations are using technologies such as blockchain and DLT (distributed ledger technology) for tracing the path of the product and displaying that it has been sourced responsibly. Walmart has been using blockchain to track food items’ trajectories, following successful trials with pork in China and sliced mangoes in the US.48 In the fashion world, designer Martine Sourcing Jarlgaard began a pilot program with start-up, Provenance, using a digital platform to track the path of raw garments to consumers’ shelves.49

Digital twins: Digital twins, especially by linking IoT data, sensors and any other data sources into a common interconnected data system, helps investigate the resource usage and energy efficiency in manufacturing. This helps organizations to investigate energy consumption at a larger scale. Unilever by using digital twins claims savings of $2.8 million in operating costs, generated mainly through Manufacturing reduction in energy costs.50

29 AI: British cosmetics retailer, Lush, is using AI to help drive its sustainability message. Based on AI and machine learning, the Lush “Lens” app allows customers to use their phones to scan the company’s “bath bombs,” which have no packaging or labels. This gives the consumer product information such as ingredients, price and even videos of what the bath bomb looks like once submerged.51

AR/VR: Organizations are deploying AR/VR-enabled packaging to reduce environmental impact and enhance customer awareness and engagement. Chiquita Brands International, a Swiss producer and distributor of bananas and other produce, offers a virtual reality (VR) experience that lets people to follow the journey of a banana from Chiquita farms in Latin America to their kitchen tables by Packaging scanning the sticker on the banana. The VR experience shows more information about Chiquita's sustainability initiatives and innovations in farm management and logistics.52 Similarly, Nestle, for instance, replaced the plastic toys and free gifts that comes along with their cereal pack, with digital rewards using AR where customers on scanning are shown videos, puzzles, and activities.53

AI: Organizations are leveraging AI in order to arrive at the best possible route for logistics. For instance, Alibaba uses AI-based routing algorithms to reduce travel distance for their logistics by 30%.54 Distribution

AI: Wasteless, an Israel-based start-up, helps retailers with dynamic pricing based on machine learning. The algorithm initiates and optimizes markdowns for products approaching expiry dates and automatically adjusts prices in the aisles. The “AI dynamic pricing engine is able to reduce the price in real time as it gets closer to the expiration date and incentivize the consumer to purchase that item while it’s still Store operations fresh. On average, for supermarkets, we are able to reduce waste by roughly about 30%, and thus increase revenues by over 40%.” says Ilya Movshovich, vice president at Wasteless.

AI: H&M uses AI to predict customer orders based upon varied internal and external data sets (ex., past purchases, weather conditions, economic factors). This helps the firm to ship only those orders that consumers plan to purchase.55 Autonomous vehicles: AI is also emerging as an important application area for autonomous vehicles, which has the potential to reduce emissions and air pollution. Amazon especially has been showing Fulfilment keen interest in building an autonomous delivery infrastructure.56

AI: Organizations are using AI to optimize reverse logistics waste. IKEA – by mapping its entire store, fulfilment, and distribution network – uses AI and data analytics to identify the next-best possible location for returned items. This means returned items can be recycled or sold, reducing the amount Circular economy of returned merchandise that ends up in landfill.57 Cloud computing: Apart from cost efficiency and agility, cloud computing drives sustainable IT. It does this by replacing the need for in-house data centers – and the associated hardware, powering, lighting and cooling systems – with shared systems. The shared model significantly reduces energy use for organizations. Research by Google and Lawrence Berkeley National Laboratory says that transitioning commonly used software applications to the cloud can cut an organization’s energy use Sustainable IT by 87%.58 Furthermore, the fact that key cloud service providers such as Amazon are planning to shift to renewable energy to power their data center network is a big plus for cloud-driven sustainability.59

Data analytics: It is critical for organizations to establish transparency across the value chain to track how the product flows from the product design to the supply chain and back. A single, unified view of the data is critical to establish the areas of focus. For instance, Walmart’s Sustainability Index gathers and analyzes data across their product’s lifecycle – from sourcing, manufacturing, transporting, to selling and end of use – to identify the critical environmental and social hotspots that needs focus.60“In terms of sustainability, digital technologies and digital dashboarding will allow us to Measure success of get a much faster grip on the performance of the organization and being able to actually steer. You can only sustainability control what you measure. If you have very manual reports, which give you data insights on a half yearly basis, you’re not managing anything. You would want to see close to real-time information on sustainability performance feeding into the organization. So that’s also where digital plays a key role” says Eelco Smit, senior director sustainability at Philips.

30 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences “AI dynamic pricing engine is able to reduce the price in real time as it gets closer to the expiration date and incentivize the consumer to purchase that item while it’s still fresh. On average, for supermarkets, we are able to reduce waste by roughly about 30%, and thus increase revenues by over 40%.”

Ilya Movshovich, Vice President at Wasteless.

The critical factors for success with technology-driven Thirdly, make sure you have the right expertise – you need people initiatives include: who know sustainability. You need strong functional owners who can really provide the guidance and the clarity. And, lastly, decide • Include sustainability as a basic principle for business very clearly why you are doing this and how will you benefit from case: It is crucial for organizations not just to add this.” sustainability as a key objective, but to focus on business cases that are sustainable. For instance, Nike views 3D In this context, key considerations are as follows: printing technology from the objective of reducing • Ensure top leadership is committed to and accountable prototyping waste.61 for sustainability: • Map the technology use cases to the broader Having sustainability champions in the c-suite is essential to sustainability goals of the organization. For instance, scale, with 84% of organizations in our survey saying they if the firm plans to invest in autonomous vehicles, this involve their c-suite in sustainability governance. However, can be mapped to the sustainability development goal of along with involvement, being accountable is also key. In addressing climate change or reducing carbon emissions. PepsiCo the senior leadership team – including chairman Elena Dimichino, sustainability director at Luxottica, says and CEO, sector CEOs and top functional leaders – assume that their firm see automation from the broader view of direct oversight of the sustainability agenda. Sustainability safety of employees, “We introduce automation that also is a key accountability factor for every member of in their allows us to safeguard the ergonomics and the health, safety senior leadership team.62 and well-being of our employees in the workplace. For instance, the transfer of repetitive tasks over to automation solutions Our research also showcases that having a dedicated keeps processes simple and efficient, facilitates the work of head of sustainability, who works in collaboration with operators and reduces ergonomic risks and injuries.” other business units, helps to ensure focus on driving • Measure success: Include tangible sustainability benefits sustainability strategy and advancing the company’s (ex., energy savings, reduction in emissions, water program. The chief sustainability officer (CSO) or head of consumption saved) as also a key metric when measuring sustainability plays an important sensing and monitoring the success rate of these technologies. role. Jason Jay, a senior lecturer at the MIT Sloan School of Management, says, “CSOs today are constantly listening to scientists, regulators, customers, and investors. Plus, they are Bring in robust governance monitoring the company’s performance on key sustainability indicators and delegating material issues to the relevant for sustainability business unit.”63 Our research reveals that currently only Effective management of sustainability requires a clear 30% of organizations have a dedicated sustainability head strategic vision, committed leadership, and a culture or chief sustainability officer. Of those who have this promoting sustainability. However, none of this will bear fruit dedicated role, 64% report to the CEO. without a robust governance structure. Robust governance • Look at a central governing structure and a federated helps an organization to scale the sustainability strategy delivery structure for sustainability: across business units, oversees the objective-setting and A centralized governance body – responsible for defining reporting processes, and strengthens relations with external the vision, principles, framework, strategy, and overall stakeholders like investors. “To scale up sustainability, first success metrics for sustainability – steers the organization of all you need to ensure commitment at the top," says Eelco in a common direction and drives culture change. A Smit, senior director sustainability at Philips. “If the top is not centralized governance body can help to: committed it will not happen. Secondly, ensure the governance structure is really well set up, so it is really clear who takes the – Display leadership commitment decisions and how things are getting cascaded into organizations.

31 – Clarify roles, responsibilities, and priorities – Coordinate efforts across the business functions – in their sustainability governance. A few sustainability gathering relevant data, tracking progress, and socializing leaders, such as IKEA, try to involve stakeholders its impact across the ecosystem in sustainability governance – Drive culture change and supports innovation. and implementation. Pia Heidenmark Cook, chief sustainability officer at Ingka Group, says, “We have a At the same time, devolving implementation and delivery global team cutting across multiple disciplines. We have of specific initiatives to business units streamlines the governance process and fosters experimentation and one team looking at impact and analytics who are doing innovation. Elena Dimichino, sustainability director at the reporting and also looking at the true impact of the Luxottica, says, “The Sustainability function at Luxottica is at activities that we are implementing. We also have a specialist a corporate level and centralized. This allows us to make sure team – involving climate specialists, sustainable transport that initiatives proposed at local level are consistent with the specialists, human rights specialists, etc. In the cross- corporate policy and, therefore, consistent with Luxottica's functional Sustainability Committee that steers strategy and vision and strategy for sustainability. At the same time, the strategic goal setting, heads of important group functions Sustainability function is also very cross-functional: we engage like procurement, real estate and retail are represented.” with different functions and support them on the initiatives they are running. I think this kind of model – which allows us all • Align KPIs with established frameworks; measure to head in the same direction while at the same time listening, and audit: collaborating and sharing best practices across functions – Around 61% of organizations in our research say they promotes new ideas and investments.” use external frameworks such as the United Nations Sustainable Development Goals (SDGs) to identify However, our research found that more needs to be done in sustainability initiatives for their organization and to set terms of the industry’s approach to governance structures: goals. However, as we saw earlier, there is a general lack of trust in companies’ claims, particularly with consumers. – Only 35% have a central governance body to oversee Therefore, external assurance of performance data can their sustainability objectives. play a critical role in building confidence in the credibility of performance against KPIs. However, audit and assurance in – Organizations do not involve many key stakeholders – the sustainability space tends to focus on a few commonly such as business unit heads, specialist teams, etc. – in measured KPIs, such as GHG emissions, water usage, sustainability governance. Our research reveals that waste generated, etc. When it comes to KPIs such as food only 48% of organizations involve heads of different wastage, end products returned, supply-chain miles, etc. business divisions (e.g., procurement head, supply – very few consumer products and retail organizations are chain head, etc.) and only 25% involve specialist teams receiving third-party assurance (see Figure 24). (e.g., water conservation team, packaging team, etc.)

“If you go 20 years back it was a lot about auditing and inspecting factories to secure compliance of the basics. In the recent times we are in collaboration with our business partners focusing on training and development of factory owners and factory workers around both environmental and social topics. It is important to go beyond the compliance agenda and in collaboration with our business partners ensure that human rights are respected and that we work in a way which drives positive development of the climate agenda. We see it as important to establish close collaborations around sustainability also outside of the actual business negotiations.”

Anna Palmqvist, Sustainability Manager at H&M

32 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Figure 24. Many non-traditional KPIs are tracked; but don’t receive third-party assurance

74% 72% 9% 9% 7% %

%

%

4% 4%

33% 2% 29% 23%

Food wastage nsold inentory ndproducts upply chain Renewable Recyclable pacaging Plastic returned by miles energy used materials used pacaging used consumers or saed

KPIs tracked and measured Assurance of KPIs by third-party

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

Moreover, sustainability reporting should also demonstrate their purchases. The scorecard also mandates the suppliers integration in action. Most organizations today look at to provide their further suppliers data to get a holistic view integrated reporting as a way of showing how integral of the network.64 sustainability is to their business strategies. More than • Establish collaboration-led models with the value chain half (53%) of organizations in our research said that their partners: This can be achieved at various levels: sustainability reporting is integrated into the group annual report. – Share sustainability goals with the value chain partners: For instance, General Mills’ sustainability Collaborate with the broader mission promotes environmental and socially responsible practices across the company’s value chain including ecosystem for a larger impact vendors, suppliers and partners.65 Training, education Sustainability-led collaborations with an organization’s and awareness sessions helps in arriving at a mutually network – such as suppliers, vendors, distributors and logistics agreeable approach for sustainability initiatives. Elena partners, as well as peer organizations – can help alleviate the Dimichino, sustainability director at Luxottica, says, environmental and social impacts deeply embedded in the “The training and information aspect for suppliers is sector’s supply chains. important. In 2013, at Luxottica we introduced the Luxottica Responsible Sourcing and Manufacturing program with the How can organizations include the broader ecosystem aim to achieve full alignment with our Code of Ethics and partners as active participants of their sustainability initiatives? principles, international standards and local laws in the areas of ethics, labor, health, safety and the environment. • Establish end-to-end visibility of key ecosystem The program applies to both our production and distribution partners: Organizations should identify the critical sites and suppliers of mainly raw materials, components and partners by mapping the supply chain networks and their finished products. This program has evolved over the years interdependencies to ensure visibility and cascading of to include: 1) on-site audits, 2) training initiatives on our initiatives across the value chain. This is critical when responsible sourcing principles, program and way of doing subcontracting is involved across the value chain in things (e.g. topics that are checked during on-site audits ) case of sourcing or logistics. For instance, the vendor and 3) informative initiatives and mutual acknowledgement assessment scorecard of Clorox profiles their key supplier’s for those suppliers that belong to very big multinational sustainability initiatives, who represent about two thirds of

33 companies and, as such, already have their own responsible – Share accountability: Organizations can also extend sourcing and sustainability programs.” their sustainability-related KPIs to their value chain partners and track their progress. Our research reveals – Work with the partners to drive action: Large that firms are yet to bring this into action. For instance, organizations should also be at the forefront in driving in the case of overall energy consumption or waste action with the ecosystem partners to discover key reduction rate, more than three-quarters track the solutions that drives impact. For instance, Levi Straus progress of their own initiatives, but only 40% monitor has worked alongside its vendors in Bangladesh, India, suppliers or vendors’ KPIs. Sri Lanka, and Vietnam to help them reduce emissions by 20% and decrease their operating cost by about $1 Organizations can also establish a reward system to million collectively.66 Anna Palmqvist, Sustainability encourage and recognize progress made. For example, Manager at H&M adds, “If you go 20 years back it was a lot providing “preferred status” benchmarks for network about auditing and inspecting factories to secure compliance partners, offering credit notes, or extending of the basics. In the recent times we are in collaboration long-term contracts. with our business partners focusing on training and • Consortia with peer networks: One of the UN’s sustainable development of factory owners and factory workers around development goals focuses on “strengthening the means both environmental and social topics. It is important to go of implementing sustainability initiatives and revitalizing beyond the compliance agenda and in collaboration with our global partnership for sustainable development”, bringing business partners ensure that human rights are respected together national governments, the international and that we work in a way which drives positive development community and the private sector. Jeff King, director of of the climate agenda. We see it as important to establish sustainability at Hershey’s, highlights the importance close collaborations around sustainability also outside of the of collaboration, especially when sourcing for their main actual business negotiations.” ingredient, cocoa: “We cannot do this alone. No single company can solve the issues in cocoa alone. We must work with other cocoa companies; governments have a critical role to play in enabling this work; and we need civil society as a partner as well.” 67 Consortia, such as the Consumer Goods Forum, bring together consumer product and retail organizations to design new and collaborative approaches for solving issues such as forced labor, deforestation, food waste, etc.

34 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences “We agree consumers should become more aware of which products are produced in a more sustainable way. With all kinds of initiatives, that is not easy for them to distinct. Therefore we also believe in independent certificates, to help them make the right choice. So for instance, we have dairy with the independent On the Way to PlanetProof quality mark, for consumers who want dairy that scores high on Biodiversity, Climate and Animal Welfare. It is a high standard and we are the first large Dairy Company to offer dairy with this quality mark. So we see that we need to do more to help consumers understand what it is. That’s also why we as companies need to work together: to take measurable steps in the right direction and create clarity so that customers can make the right choices.”

Ynte de Vries, Program Manager Farm Energy at FrieslandCampina

Conclusion

Sustainability is a topic that consumers and organizations hold that represent a material threat / opportunity to those who close to their hearts. Consumers feel an emotional connection ignore of embrace the challenge of 6% of revenue. with sustainability and their behavior is shifting as a result. At Finally, organizations are also failing to scale sustainability, the same time, many organizations are making sustainability a missing out on realizing the key benefits sustainability strategic priority. provides in terms of loyalty, employee churn, ESG However, a disconnect is undermining these good intentions. performance and ultimately sales protection & growth. While consumers want to be sustainable, they are not always To plug these gaps, and turn ambition into reality, aware of the environmental footprint of the common organizations need to accelerate sustainability to scale: products they purchase or enabled with sufficient choice to exploiting technology’s huge potential to drive and realize convert this intent into action. the sustainability imperative, educating and empowering Likewise, organizations are out of sync with consumer consumers and employees, putting robust governance in views, including consumer concerns about how trustworthy place, and extending sustainability to the entire ecosystem – sustainability claims are and the pace at which consumer including suppliers, vendors distributors, logistics partners, preferences and loyalty is shifting. For instance, while 80% and even peer organizations. of consumers are changing their purchases on the basis of environmental and social impact, only a third of organizations are recognizing the change. This is creating a significant gap,

35 Appendix 1

Lagging on sustainability is a missed revenue opportunity for retail and consumer products organizations

On the basis of responses from our consumer survey, we did an additional back of the envelope analysis to understand what will be the impact of “not” being sustainable on organizations. We found that it is ~6% missed potential revenue opportunity for organizations, if they do not focus on sustainability practices.

Figure 25. Potential loss of revenue for organizations from the growing disconnect between consumer intent to switch and organisations belief they will do this

Global US UK Sweden France Germany Nether- Italy Spain India lands

Share of consumers who are hesitant to buy from A 60% 44% 56% 72% 70% 58% 67% 65% 70% 38% organizations which they percieve as non-sustainable

Of the consumers who are hesitant, share of consumers B* who have 34% 27% 30% 31% 32% 29% 23% 38% 33% 60% already reduced spending from organizations they perceive as non-sustainable

% reduction of spending already done if consumers find 28% 26% 27% 32% 27% 23% 30% 32% 29% 27% C that organizations are not engaged in sustainable practices

Missed revenue for the organization D=A*B* when 5.8% 3.1% 4.5% 7.2% 6.0% 3.8% 4.6% 7.8% 6.8% 6.1% C sustainability practices are not adopted

*Consumers who always took this action

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers; Capgemini Research Institute Analysis

36 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Appendix 2 Research Methodology

We surveyed 7,500 consumers globally to understand their preferences, behaviors, and expectations on sustainability.

Consumers by country Consumers by age

% % % % % % 7% 20%

% % %

% % % 20% %

weden – – – years years years rance ermany etherlands – – – years years years taly pain ndia and aboe Consumers by gender Consumers by employment status %

20% 4% 0% 0%

%

7% %

emale ale ulltime Parttime elfemployed employed employed consultant or freelancer nemployed Retired ulltime student Consumers by marital status Consumers by pre-tax household income

% 3% 3% % 2% 2% % %

% 9%

3% 2%

2% 2% ess than – – ingle arried Cohabiting Common law partnership – – – Ciil iorced idowed partnership eparated – or more

Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, March 2020, N=7,520 consumers.

37 We also surveyed 750 senior executives in various subsectors of CPR to gain more insights on maturity, priorities, and outlook of sustainability. Organizations by country Organizations by sector

2% 2% 0% 0%

% 0% 2% 0% % 0% 0% 2% 2% 7% 2% 2% 7% 0% 7% weden pparels Household manufacturing manufacturing care manufacturing rance ermany etherlands Personal care Consumer uury white goods taly pain ndia manufacturing goods manufacturing rocery ashion Home retail retail improement urniture Consumer white retail goods retail Organizations by revenue Organizations by no. of employees

3% 4% 3% % 9% 2% 23% 2%

2%

40% 2% million– billion– billion– – – – million billion billion employees employees employees

billion– ore than – – ore than billion billion employees employees employees Executives by function Executives by designation 4% % % 9% 7% 7% 2% 27% 9%

% 2% 7% 2% 0% 7% 4%

CR ustainability Corporate R Cleel ice trategy eecuties Presidents ourcing anufacturing upply chain Operations ustainability irectorsenior and logistics Heads irectors ales and areting inance Core program lead Source: Capgemini Research Institute, Sustainability in Consumer Products and Retail Survey, April–May 2020, N=750 consumer products and retail organizations.

38 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Capgemini Invent

A preferred partner to help you solve sustainability challenges within the CPR industry Value proposition and approach:

Our ambition is to enable our CPR clients (and many others) to lower their carbon footprint in accordance with the Paris Agreement. We are actively working with CPR clients to: • Developing & operationalizing sustainable packaging strategies • Reducing waste through retail sales prediction. We already work with: • Original equipment manufacturers’ new business model for energy transition – we helped set up battery cell production for a global battery manufacturer, enabling the transition from fossil fuels to clean energy, and we developed a user-friendly electric vehicle (EV charging app). • New market entrants to create energy transition offers – we’re defining new business models in the energy storage market and developing a sustainable financing offer. Our green/clean offers have seen us enter the gas and power retail markets, and we’re helping brands to reposition themselves in the context of how battery technology can help people and the planet. • OEMs and energy providers to increase their share of renewables – we’re helping a leading firm develop a growth strategy for its renewables offering, enabling it to become a European leader in renewables. We support the development of biogas in selected companies, and we’re helping one client define a digital vision of its renewable activities by setting up an e-mobility business unit. In the UK, we’re defining the governance model for the partnership management of a firm’s domestic solar business, and we’re designing and building operational services to enable 5% of the UK population living in high-rise buildings and large properties to have access to smart meters, leading to a reduction in energy consumption. Some of the largest energy providers are also seeing energy savings as a result of our support. • Investors to accelerate funding for energy transition – we’re identifying and scouting for startups and innovation projects and supporting the development of a dedicated cleantech acceleration program. • Energy consumers to reduce their energy and CO2 footprint – we set up the very first renewable power purchase agreement in France, helped to qualify and select providers for renewable energy, and defined the 2030 climate strategy and project setup. We are also helping one client optimize its energy mix consumption, leveraging data and AI. And, we’re building green IT reporting, helping cities to develop a new mobility concept, and enabling some countries to run carbon free for weeks at a time. Why us ?

As a globally renowned technology and digital leader, Capgemini inherits the responsibility, the ambition, and the means to contribute to solving major societal questions that shape our world – and at Capgemini Invent we are contributing to making this ambition a reality. Invent for Society showcases how social impact is part of the fabric of what we do for our clients every day. For more information, please visit: https://www.capgemini.com/service/invent/invent-for-society/

39 Our Integrated Architecture framework

We have created the Integrated Architecture Framework (IAF) with a new focus on Sustainability, which is unique in the industry • One of the hardest things when designing an IT solution is to decide what artefacts to develop and how to structure the various business, information, information system and technology infrastructure related aspects and to balance these against environmental, security and governance related considerations. To help, we developed a complete architecture framework called IAF (integrated architecture framework). • Aspects like quality and value for money, sustainability and agility are key characteristics critical to any IT solution. Sustainability in an information technology context can be characterized by the application of IT practices and technologies for the benefit of customers and others stakeholders that ensure long-term well-being in economic, social, and environmental sustainability pillars.68 • Capgemini’s New Integrated Architecture Framework (IAF) V6 - the Sustainability Edition provides alignment considering all relevant artefacts.

hree erspecties Sustainability, Security and Governance across all Abstraction Layers and Aspect Areas Four Abstraction evels

hy does need to be transformed ustainaiit ecurit oernance Contet information and ey principles that erspectie erspectie erspectie support the alue proposition h ontetua bstraction eel

hat serices are reuired hat is reuired from each serice hat onceptua bstraction eel

How can customer needs be realied with technology components ogica How do technology components interrelate ow bstraction How do components implement serices eel

hsica ith hat standards products guidelines ith bstraction will technology components be eel implemented what normation echnoog usiness normation stems nrastructure spect rea spect rea spect rea spect rea

Four main spect reas Business, Information, Information Systems and Technology Infrastructure

40 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences References

1. United Nations, “The sustainable development agenda.” 2. Sustainable Brands, “P&G smashes 2020 goals, raises the bar with ‘Ambition 2030’,” April 2018. 3. InStyle, “Sustainable fashion brands every budget,” April 2020. 4. Dazed digital,“G-Star RAW just launched the world’s most sustainable denim,” February 2018. 5. BBVA, “5 best recycling practices from around the world,” February 2020. 6. Sustainability Kroger, “Plant, energy and emissions.” 7. Capgemini Research Institute Transformation Agenda post COVID-19, May 2020, N=1,000 respondents globally. 8. Capgemini Research Institute, “The consumer and COVID-19: Global consumer sentiment research in the consumer products and retail industry,” April 2020. 9. Capgemini Research Institute, “The consumer and COVID-19: Global consumer sentiment research in the consumer products and retail industry,” April 2020. 10. BBC, “Coronavirus: Starbucks bans reusable cups to help tackle spread,” March 2020. 11. NY Times, “California lifts ban on plastic bags amid virus concerns,” April 2020. 12. Capgemini Research Institute, “Why purpose-led organizations are winning consumers’ hearts,” June 2020. 13. Capgemini Research Institute, “The consumer and COVID-19: Global consumer sentiment research in the consumer products and retail industry,” April 2020. 14. World Economic Forum, “How going green can help the planet and your profits,” March 2017. 15. Business Insider, “Adidas sold 1 million pairs of sneakers made from ocean waste in 2017 — now the company is introducing a line of recycled clothing and taking steps to become even more sustainable,” May 2018. 16. Unilever, “Unilever's purpose-led brands outperform,” June 2019. 17. CNBC, “Levi’s CEO: ‘The best innovation happens when you’ve got constraints’,” November 2019. 18. SupplyChainQuarterly,“Innovation at Levi's required radical supply chain changes,” February 2020. 19. Privy, “All Birds,” April 2020. 20. Ellen Macarthur Foundation, “Circular design: Fairphones case study - modular mobile phone design,” accessed May 2020. 21. Patagonia, “Our footprint: Everything we make has an impact on the planet,” accessed May 2020. 22. Unilever, “Sustainable water use in our manufacturing operations,” accessed May 2020. 23. Nestlé, “Nestlé pilots reusable and refillable dispensers to reduce single-use packaging,” May 2020. 24. Ecological brands, “L’Oreal is launching seed Phytonutrients, a sustainable beauty brand with paper packaging,” May 2018. 25. Forbes, “How Chinese retailer JD.com uses AI, big data & robotics to take on Amazon,” August 3, 2018. 26. The Irish Times, “AI technology drives savings for large energy users in retail sector,” December 2018. 27. Fast Company, “Ikea has invested in enough clean energy to power all of its operations (plus extra),” Sept 2019. 28. Livemint, “Amazon India to add 10,000 electric vehicles to its delivery fleet by 2025,” January 2020. 29. H&M website, “Garment collecting,” accessed May 2020. 30. Mondelēz, “Mondelēz International joins innovative loop platform to reduce packaging waste with Milka biscuits,” January 2019. 31. Digiday, “Brands are using blockchain to promote sustainable products,” September 2018. 32. Walmart, “Sustainability Report,” 2016. 33. TOMS website, “About TOMS,” accessed May 2020. 34. CEO Today Magazine,“Could coronavirus trigger the start of a circular economy?” June 2020. 35. Euractiv,’“Circular economy erected as ‘number one priority’ of European Green Deal,” December 2019. 36. Capgemini, “Loops of life, How consumer products and retail brands can build value and resiliency through the circular economy,” 2019. 37. Inc.” The containers for your most basic household products are about to look a lot different, thanks to this company,” March 2019. 38. FastCompany, “Loop’s zero-waste everyday product delivery service is expanding to the whole US,” April 2020. 39. European Union, “European circular economy stakeholder platform: MUD jeans: circular denims (almost) never die.” 40. The Verge, “Starbucks begins in-store testing of greener cup,” March 2020. 41. Edie, “Why Unilever's employees are key for a new era of sustainability leadership,” January 2019. 42. Chief Executive “P&G CEO Taylor embraces sustainability thinking in c-Suite and beyond,” June 2019.

41 43. Businesswire, “P&G announces new environmental sustainability goals focused on enabling and inspiring positive impact in the world,” April 2018. 44. BloombergGreen,” Unilever’s New Climate Plan Puts Carbon Labels on 70,000 Products,” June 2020. 45. Singularity Hub, “Leapfrogging tech is changing millions of loves,” May 2018. 46. LG, “LG introduces next generation of laundry with new AI-powered washer,” January 2020. 47. Nike, “Nike Flyprint is the First Performance 3D Printed Textile Upper,” April 2018. 48. Hyperledger, “How Walmart brought unprecedented transparency to the food supply chain with Hyperledger Fabric.” 49. Digiday, “Brands are using blockchain to promote sustainable products,” September 2018. 50. The Wall Street Journal, “Unilever uses virtual factories to tune up its supply chain,” July 2019. 51. Adweek, “Lush is using machine learning and AI to make wasteful packaging and signage irrelevant,” March 2019. 52. Mobile marketer, “Chiquita, Shazam partner on AR/VR banana experience,” July 2018. 53. Zappar, “Eco friendly business are using augment reality,” November 2019. 54. Beautifeye, “Reduction in Alibaba travel distances with AI route optimization,” May 2019. 55. Retail Dive, “H&M turns to big data, AI to tailor store assortments,” May 2018. 56. Geek Wire, “Amazon reportedly in advanced talks to acquire autonomous vehicle startup Zoox,” May 2020. 57. Supply Chain Dive, “Ikea teams up with Optoro to reduce reverse logistics waste,” December 2019. 58. Agile It, “Environmental benefits cloud computing,” April 2019. 59. Data center frontier, “Data centers accelerate their focus on sustainability, green power,” April 2020. 60. Walmart Sustainability hub, “Sustainability-index.” 61. Nike Circular design,”Waste avoidance.” 62. Pepsico, “Sustainability Governance,” accessed May 2020. 63. Odgers Berndston, “The rapid rise of the Chief Sustainability Officer,” October 2019. 64. The Clorox Company, “Responsible Sourcing and sustainability.” 65. General Mills, “General Mills recognized as global leader in corporate sustainability.” 66. Environmental leader, “Levi Strauss & Co. signs $2.3M deal to cut water use and emissions,” July 2019. 67. Food Navigator, “Hershey talks sustainability goals: ‘The challenge is the enormity of the work in front of us’,” June 2020. 68. IEEE,” From Green Computing to Sustainable IT: Developing a Sustainable Service Orientation”

42 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences About the Authors

Kees Jacobs Dr James Robey Vice President, Global Lead for Insights & Data, Global Head of Environmental Sustainability, Capgemini Consumer Products & Retail Capgemini [email protected] [email protected] Kees is overall industry thought leader within Dr James Robey has led the sustainability agenda the Global Sector for Consumer Products and at Capgemini since 2008, creating and driving a Retail at Capgemini and has more than 25 years broad ranging program to reduce the Group’s working experience in this industry. Kees has a own environmental impacts whilst identifying long track-record as leader of digital initiatives in opportunities to support Capgemini’s clients with both B2C and B2B domains at leading retailers and their own sustainability challenges. In addition, he manufacturers around the world. teaches at a number of leading universities on the topic of Sustainable Business.

Katja van Beaumont Cyndi Lago Vice President, Consumer Products, Retail, Vice President, Supply Chain, Capgemini Distribution, Capgemini The Netherlands, [email protected] [email protected] Cyndi Lago is a Vice President and the leader of Katja is a thought-leader at Capgemini in the Supply Chain for Capgemini, where she helps large, Consumer Products and Retail industry. With complex organizations in multiple industries digitally over 20 years of experience in delivering transform supply chain operations in areas including transformational business initiatives enabled by demand planning, order management, master data technology, she is a visionary leader, elevating management, and analytics. aspirations and bringing about a lasting positive impact for all stakeholders

Marc Rietra Steve Hewett Vice President, Consumer Products, Retail, Vice President, Global CPR Leader in Retail Customer Distribution, Capgemini The Netherlands, Transformation Capgemini Invent [email protected] [email protected] Marc is a thought-leader at Capgemini in the Steve is a global leader working within Capgemini's Consumer Products, Retail & Distribution industry. consumer products & retail sector, driving the With over 20 years of experience in delivering groups strategic retail customer transformation transformational initiatives he has been leading offerings. Steve has worked for leading brands customers to success, always bringing in a unique across all areas of customer transformation from vision ensuring meaning and long-term customer experience strategy and innovation value creation. to digital marketing, omni-channel ecommerce, customer service, CRM and Loyalty

Jerome Buvat Nancy Manchanda Global Head of Research and Head of Capgemini Senior Manager, Capgemini Research Institute Research Institute [email protected] [email protected] Nancy is a senior manager with Capgemini Research Jerome is head of Capgemini Research Institute. He Institute. She keenly tracks the patterns of digital works closely with industry leaders and academics disruptions across industries and evaluates its to help organizations understand the business impact on businesses. impact of emerging technologies.

Sumit Cherian Abirami B Manager, Capgemini Research Institute Manager, CPRD Sector Hub` [email protected] [email protected] Sumit is a manager at the Capgemini Research Abirami is a manager with Capgemini’s CPRD sector Institute. He leads research initiatives across hub. She engages in research initiatives that analyzes sectors to help clients understand how digital the impact of digital disruption on consumer technologies disrupt business landscape and behavior, people, talent and business landscape consumer behavior.

43 The authors would like to especially thank Subrahmanyam KVJ from the Capgemini Research Institute for his contributions to the report. The authors would also like to thank Tim Bridges, Lindsey Mazza, Werner van der Lely, Michael Petevinos, Prashant Chaturvedi, Shannon Warner, Mike Haddon, Vito Labate, Matt Bradley, Bhavesh Unadkat, Phil Davies, Emily Twomey, Desiree Fraser, Emma Pluck, Karin Danielsson, Jenna Wichmann, Vincent le Noble, Emmanuel Fonteneau, Jordan Friedman, Sophie Berg, Louise Marie Goelen, Claire Lavagna, Hanne Buus van der Kam, Andrillon Florent, Michaela Scalisi, Theresa Ignatius, Michiel Boreel, Jean-Baptiste Perrin, Annie Huges, Joost Bleize, Martin van Vugt, Mikko Nordlund, Ella Paludo, and Ankita Fanje for their contributions to this report.

About the Capgemini Research Institute

The Capgemini Research Institute is Capgemini’s in-house think tank on all things digital. The Institute publishes research on the impact of digital technologies on large traditional businesses. The team draws on the worldwide network of Capgemini experts and works closely with academic and technology partners. The Institute has dedicated research centers in India, the United Kingdom, and the United States. It was recently ranked Top 1 in the world for the quality of its research by independent analysts. Visit us at www.capgemini.com/researchinstitute/

44 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences For more information, please contact:

Global

Tim Bridges Kees Jacobs [email protected] [email protected]

Australia China Nitin Goel Winston Pang [email protected] [email protected] Prashant Chaturvedi [email protected] Mexico Marc Monsonego [email protected] India Alok Hota [email protected] UK Mike Petevinos [email protected] Spain David Luengo Ruiz [email protected] France Patrick Ferraris [email protected] APAC Alva Qian Netherlands [email protected] Theo van Roekel [email protected] Italy

Claudio Corso US [email protected] Sanjay Dalwani [email protected] South East Asia Gaurav Modi Germany [email protected] Martin Arnoldy [email protected]

Brazil Willian Valiante Scandinavia [email protected] Fredrick Astrom [email protected]

Japan Shingo Ochi [email protected]

Portugal Isabel Cristovao [email protected]

45 Discover more about our recent research

The Automotive Industry in Smart Stores Conversations the Era of Sustainability Towards Ethical AI

Emotional Intelligence Smart Talk The last-mile delivery challenge

Building the Retail Superstar Digital Supply Chain AI in Customer Experience

46 Consumer Products and Retail – How sustainability is fundamentally changing consumer preferences Subscribe to latest research from Capgemini Research Institute

Receive advance copies of our reports by scanning the QR code or visiting https://www.capgemini.com/ capgemini-research-institute-subscription/ About Capgemini

Capgemini is a global leader in consulting, digital transformation, technology and engineering services. The Group is at the forefront of innovation to address the entire breadth of clients’ opportunities in the evolving world of cloud, digital and platforms. Building on its strong 50-year+ heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. Today, it is a multicultural company of 270,000 team members in almost 50 countries. With Altran, the Group reported 2019 combined revenues of €17billion.

Visit us at www.capgemini.com MACS_CS_ MS_ 20200630 MS_ MACS_CS_

The information contained in this document is proprietary. ©2020 Capgemini. All rights reserved.